August 20, 2013

The GOP Plan to Crush Silicon Valley
What will become of Steve Jobs’s angel?

When Congress returns from its summer recess in early September, it will have exactly nine legislative days to agree on a budget or the government will shut down. House Republicans are seeking far greater cuts in non-defense spending than Senate Democrats, and some members of the GOP are threatening to hold up any budget agreement until the Obama administration abandons the Affordable Care Act. It’s going to be a slog, with all sorts of unseemly compromises. But let me suggest an area where Democrats should allow exactly zero more dollars to be excised from the federal budget: government research for science and technology. We’ve already seen a 13 percent drop in this area over the last two years, and it’s hard to overstate just how damaging to the country’s future further reductions would be.

Many people still cling to the idea that government is, without exception, a drag upon the private economy. Conservatives “know that when it comes to economic progress,” Arthur Brooks, the president of the American Enterprise Institute, wrote last year in National Review, “the best government philosophy is one that starts every day with the question, ‘What can we do today to get out of Americans’ way?’ ” They imagine the United States as a land of plucky inventor-entrepreneurs (“We built it!” they cry) who work out of garages and depend solely on their wits. The problem is that this vision of American inventiveness is pure myth.

Steve Jobs, who has nearly been beatified in his role as independent businessman, excelled at designing products based on government-funded inventions. Some of Apple’s most vaunted achievements—the mouse, a graphical user interface, the touch-screen, even Siri—were all developed in part with federal finances. Or take Google. Its search engine came out of a $4.5 million digital-libraries research grant from the National Science Foundation (NSF). You can also look at the pharmaceutical industry. According to a Congressional Budget Office study, 16 of the 21 “most influential drugs” introduced between 1965 and 1992 depended on federally funded research.

The list goes on. Federal money helped support the invention of lasers, transistors, semiconductors, microwave ovens, communication satellites, cellular technology, and the Internet. Now, the feds are prime backers of the Human Genome Project (which could transform medicine) and nanotechnology (which could transform manufacturing). Subtract these kinds of innovations from America’s future, and you have an economy dependent on tourism, the tottering superstructure of big finance, and the export of raw materials and farm products. More to the point, you have a weaker country—not just in comparison with its competitors, but also in its ability to provide its citizens with richer, longer, more imaginative lives.

From World War II through the 1980s, Republicans understood this logic, backing government support for science and technology. Harry Truman’s advancement of atomic energy and John Kennedy’s enthusiasm for space travel are well known, but some of the biggest steps in “industrial policy”—the acceptable term is now “innovation strategy”—occurred during the presidencies of Dwight Eisenhower and Ronald Reagan.

Peter Oumanski

After the Soviet Union launched Sputnik in 1957, the Eisenhower administration created NASA. The same year, the Pentagon established what would become the Defense Advanced Research Projects Agency (DARPA), which laid the foundations for today’s information economy, having helped develop everything from the Internet (originally ARPAnet) to chip design to artificial-intelligence software. DARPA and not Bay Area venture capitalists provided the seed money for Silicon Valley.

Reagan, for his part, was known for saying that “government is not the solution to our problem; government is the problem,” but in 1982, he championed a new program called Small Business Innovation Research, which by 2006 was spending $2.1 billion on more than 5,800 research grants to businesses. Over the course of his term, he also oversaw the formation of Sematech, a government-industry consortium that developed new methods of chip manufacturing, and several other programs that would become major funders of computer science and nanotechnology.

Republicans justified their initial support for industrial policies on national defense grounds—we had to stay ahead of the Russians, after all—so the end of the cold war marked a major change in their outlook. Once Republicans took control of Congress in the landslide of 1994, they began defunding the Advanced Technology Program (which Reagan started) and killed Congress’s own Office of Technology Assessment. Still, they continued to support the National Institutes of Health (NIH) and NSF and even, under George W. Bush, the National Nanotechnology Initiative. In 2007, Bush signed a bill that promised to double funding for physical science and engineering in seven years and established a version of DARPA in the Energy Department—ARPA-E—to research renewable energy.

How quaint that now seems. In his first year in office, President Obama accelerated the programs that Bush had approved—doubling the science budget and fully funding ARPA-E—but Republicans greeted these efforts with outright hostility rather than skepticism. Part of it had to do with partisan politics, part a growing anti-government sentiment within the Republican base, and part the attempt by Republican contributors like the Koch brothers to exploit that anti-government sentiment to oppose regulations that affect their industries.

After the Republicans won the House in November 2010, they forced the Obama administration to agree to annual reductions in spending on science and technology. The NIH’s budget has been cut after sequestration by $1.6 billion and is now the lowest it has been since 2000. Reductions to the NSF budget have led to about 1,000 fewer research grants. And the budget proposals now coming out of the House would gut programs for renewable energy and climate change. The Republicans propose cutting ARPA-E’s budget by 81 percent.

Conservatives imagine a land of plucky inventor-entrepreneurs who work out of garages and depend solely on their wits.

Republicans say they oppose Obama’s innovation strategy because it consists of picking winners. Some government spending—for instance, on the Human Genome Project or nanotechnology—is hard to characterize that way. But a lot of this spending does favor certain kinds of industries over others—renewables over fossil fuels, microprocessors over memory chips, drugs that are “new molecular entities” over variations on older drugs—and in making these choices, the government ends up subsidizing research at some companies rather than others. This process inevitably leads to failures, Solyndra being the most notorious recent example, because it requires the government to fund technologies that aren’t yet sufficiently profitable to attract private capital. It’s too early to evaluate Obama’s initial efforts; many of these investments will take decades to come to fruition. But it can be said that, while Solyndra went under, electrical transmission using solar and wind doubled during Obama’s four years.

Even in the face of Republican intransigence, the White House has continued to press for its innovation strategy. In March 2012, Obama unveiled a plan for a National Network for Manufacturing Innovation, which would set up regional institutes that bring together scientists, engineers, and business and labor leaders to devise new manufacturing technologies. A pilot center, initiated in Youngstown, Ohio, last August, is focused on 3-D printing. This year, Obama requested a billion dollars for it in his 2014 budget, but he probably won’t get it. “The thought was there, but the will isn’t there because of Republican opposition,” says David Hart, a professor at George Mason who served as assistant director of innovation policy at the White House Office of Science and Technology Policy for the last two years.

Some industries do support the administration’s innovation strategy, but two of the most influential business groups, the Chamber of Commerce and the National Association of Manufacturers (NAM), have proved difficult to persuade, even though their members could end up benefiting hugely. The Chamber of Commerce backed Sematech and Small Business Innovation Research grants under Reagan, but since 1994, it has staked its clout on an alliance with Republican congressional leaders. The organization is unmovable. That’s why negotiations with NAM, which isn’t quite as hard-line conservative as the Chamber, have proved doubly frustrating. Hart remembers being faced with a catch-22: The White House needed NAM to get Republican congressmen on board, but “they said they needed the Republicans to support the policies” before they’d lobby for them in the first place. This April, NAM did come out for the “concept” of the White House plan but said it remained “concerned about where the money is found to fund it.”

Given all this, the prospects for Obama’s innovation strategy are dim. What is most likely to happen when Congress reconvenes is that Democrats and Republicans will agree on a continuing resolution that will fund the government at its current level, meaning that spending on research and development will continue to lag and could fall even further in 2014 when the next sequestration cuts kick in. Democratic Senator Sherrod Brown and Republican Roy Blunt have separately introduced the administration’s proposal for a manufacturing network, but there is little chance it’ll get through Congress.

America has always prided itself on its frontier spirit, but for the last 70 years, the country’s greatest economic successes have come from wedding that spirit to federally funded advances in science and technology. That formidable combination is now in jeopardy. And so is America’s place as the world leader in high technology.